In Gigabiz Ltd and others v HMRC [2023] UKFTT 693 (TC) (15 August 2023), although the FTT ordered HMRC to pay the appellants’ costs of, and occasioned, by the appeals, it dismissed the appellants’ claim for those costs to be awarded on an indemnity basis even though HMRC had, among other things, conceded the dispute on the very last day of the hearing. HMRC’s conduct was not sufficiently unreasonable to justify an indemnity costs order.
Although the normal position at the FTT is that each party pays their own costs even if they are successful, there are a few exceptions to this general rule. For instance, the FTT has a wide discretion to award costs in a case such as Gigabiz, which was allocated to the complex category and where the taxpayers did not opt to exclude liability for costs within 28 days of their case being so categorised.
In exercising its discretion as to costs, the FTT followed rule 44.2(2) of the Civil Procedure Rules in ordering the unsuccessful party (in this case, HMRC) to pay the costs of the successful party (in this case, the taxpayers).
Normally, a costs order enables the successful party to recover its costs on a standard basis, meaning that any doubt as to whether the costs are recoverable, i.e. whether they have been reasonably incurred and are reasonable in amount, is resolved in favour of the paying party.
The taxpayers in Gigabiz, though, wanted to recover their costs on an indemnity basis, meaning that any doubt as to whether the costs have been reasonably incurred and/or were reasonable in amount would be resolved in their favour.
For costs to be awarded on an indemnity basis, however, the other party’s conduct must have been unreasonable to a serious degree. In Gigabiz, this high threshold for unreasonable conduct had not been met.
In particular, the FTT noted that in Gigabiz an indemnity costs award was not appropriate:
merely because HMRC had a weak case or could be criticised for failing to understand documents and for misinterpreting their own internal systems — as HMRC would in any event be paying the appellants’ costs of meeting those weak arguments, and dealing with those misunderstandings, under the standard basis;
even though HMRC’s argument or position changed often — according to the FTT, even if the arguments or positions changed to such a degree that it was prejudicial to a fair hearing, the appellants should have sought an adjournment and the costs thrown away as a result – it was ‘not [for the appellants] to seek indemnity costs later’;
simply because HMRC raised penalties for deliberate behaviour since this was open to HMRC to do, so that it could try to prove and test its case; and
even though HMRC conceded on the very last day of the hearing, which was an unusual feature — this was still not ‘conduct that was unreasonable to the necessary serious degree given the context of [HMRC’s] investigation and the evidence as a whole’.
In addition to determining that the appellants’ costs should be assessed on the standard basis, the FTT ordered the appellants to seek a detailed assessment of costs given that the sum of the appellants’ costs claim (above £130,000) was substantial (given that the threshold for substantial is normally around £20,000) and therefore unlikely to be suitable for summary assessment of costs.
Finally, the appellants had also failed to provide a proper schedule of costs drafted in line with CPR PD 44, which (other than in the most basic cases) is normally required in order for a summary assessment of costs to be made.
Why it matters: If a taxpayer fails to prepare a proper schedule of costs (as the appellants failed to do in Gigabiz) and/or requests an indemnity costs order where one is not warranted (as in Gigabiz), the taxpayer may well find themselves in a position where the costs incurred in making the costs application are refused.
Although the FTT in Gigabiz ordered HMRC to pay the taxpayers’ costs on the standard basis, and for such costs to be assessed by a specialist costs judge if the parties could not agree them, the FTT judge suggested that if he were the costs judge, he would not award any of the appellants’ costs in making the costs application, amending it or responding to HMRC’s objections to it.
In Gigabiz Ltd and others v HMRC [2023] UKFTT 693 (TC) (15 August 2023), although the FTT ordered HMRC to pay the appellants’ costs of, and occasioned, by the appeals, it dismissed the appellants’ claim for those costs to be awarded on an indemnity basis even though HMRC had, among other things, conceded the dispute on the very last day of the hearing. HMRC’s conduct was not sufficiently unreasonable to justify an indemnity costs order.
Although the normal position at the FTT is that each party pays their own costs even if they are successful, there are a few exceptions to this general rule. For instance, the FTT has a wide discretion to award costs in a case such as Gigabiz, which was allocated to the complex category and where the taxpayers did not opt to exclude liability for costs within 28 days of their case being so categorised.
In exercising its discretion as to costs, the FTT followed rule 44.2(2) of the Civil Procedure Rules in ordering the unsuccessful party (in this case, HMRC) to pay the costs of the successful party (in this case, the taxpayers).
Normally, a costs order enables the successful party to recover its costs on a standard basis, meaning that any doubt as to whether the costs are recoverable, i.e. whether they have been reasonably incurred and are reasonable in amount, is resolved in favour of the paying party.
The taxpayers in Gigabiz, though, wanted to recover their costs on an indemnity basis, meaning that any doubt as to whether the costs have been reasonably incurred and/or were reasonable in amount would be resolved in their favour.
For costs to be awarded on an indemnity basis, however, the other party’s conduct must have been unreasonable to a serious degree. In Gigabiz, this high threshold for unreasonable conduct had not been met.
In particular, the FTT noted that in Gigabiz an indemnity costs award was not appropriate:
merely because HMRC had a weak case or could be criticised for failing to understand documents and for misinterpreting their own internal systems — as HMRC would in any event be paying the appellants’ costs of meeting those weak arguments, and dealing with those misunderstandings, under the standard basis;
even though HMRC’s argument or position changed often — according to the FTT, even if the arguments or positions changed to such a degree that it was prejudicial to a fair hearing, the appellants should have sought an adjournment and the costs thrown away as a result – it was ‘not [for the appellants] to seek indemnity costs later’;
simply because HMRC raised penalties for deliberate behaviour since this was open to HMRC to do, so that it could try to prove and test its case; and
even though HMRC conceded on the very last day of the hearing, which was an unusual feature — this was still not ‘conduct that was unreasonable to the necessary serious degree given the context of [HMRC’s] investigation and the evidence as a whole’.
In addition to determining that the appellants’ costs should be assessed on the standard basis, the FTT ordered the appellants to seek a detailed assessment of costs given that the sum of the appellants’ costs claim (above £130,000) was substantial (given that the threshold for substantial is normally around £20,000) and therefore unlikely to be suitable for summary assessment of costs.
Finally, the appellants had also failed to provide a proper schedule of costs drafted in line with CPR PD 44, which (other than in the most basic cases) is normally required in order for a summary assessment of costs to be made.
Why it matters: If a taxpayer fails to prepare a proper schedule of costs (as the appellants failed to do in Gigabiz) and/or requests an indemnity costs order where one is not warranted (as in Gigabiz), the taxpayer may well find themselves in a position where the costs incurred in making the costs application are refused.
Although the FTT in Gigabiz ordered HMRC to pay the taxpayers’ costs on the standard basis, and for such costs to be assessed by a specialist costs judge if the parties could not agree them, the FTT judge suggested that if he were the costs judge, he would not award any of the appellants’ costs in making the costs application, amending it or responding to HMRC’s objections to it.
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